Int. Macro (Midterm 2)
With d as the depreciation rate of capital and MPK' as the marginal product of capital next period, the marginal benefit from investment for a firm is equal to
(MPK'+1-d)/(1+r)
The marginal cost of investment for the firm is equal to
1
Which of the following, if implemented in the Solow growth model, would not lead to a steady state?
A constant marginal product of capital.
The Solow model emphasizes the role of which of the following factors of production?
Capital (K)
The biggest contribution to real GDP growth in the "East Asian Tigers" during the period 1966-1991 was due to growth in
Capital stock
For the production function, Y = zK^(0.36)N^(0.64), if measured output is Y, measured capital input is K, and measured labor input is N, then the Solow residual would be equal to
Y/(K^(0.36)*N^(0.64))
A steady state is
a long-run equilibrium.
The demand for current consumption, as plotted against current income, shifts to the right due to all of the following except
an increase in current income.
Any increase in the present value of dividends for the consumer implies
an increase in lifetime wealth and a decrease in current labor supply.
In the intertemporal monetary model, the effects of a temporary decrease in total factor productivity include
an increase in the real interest rate (r) and an increase in prices (p).
An increase in government expenditures corresponding to 2% of GDP should, according to the model, increase GDP by
between 0% and 2%.
The biggest contribution to real U.S. GDP growth in the 1970s was due to growth in
both the capital stock and the labor force.
Money neutrality states that
changes in money do not affect real aggregates.
MRS C1, C2 is used to describe the representative consumer's
consumption - savings decision.
The endowment point is the consumption bundle in which
consumption is equal to disposable income in each period.
The cash-in-advance model with temporary total factor productivity shocks replicates which stylized fact?
countercyclical prices
Changes in government spending are not likely causes of business cycles because government spending induced business cycles would predict
countercyclical real wages. countercyclical consumption.
When drawn against the real interest rate, output supply increases if
current capital (K) increases.
When drawn against the real interest rate, the optimal investment schedule shifts to the right if the
current capital stock (K) decreases.
The condition, MRSL,C = w, describes the representative consumer's
current period work - leisure decision.
The current demand for money increases when
current real income increases the rate of interest decreases
When drawn against the current wage, the current labor supply shifts to the right if
current taxes increase.
When drawn against the real interest rate, output supply increases if
current total factor productivity (z) increases.
An increase in lifetime wealth is likely to
decrease current labor supply and increase current consumption demand.
Money demand increases if
decrease in interest rate (r) increase in real income
The money supply is
determined by policy.
When drawn against the current real wage, the labor demand curve is
downward sloping because the marginal product of labor declines with the quantity of labor employed.
The condition, MRSL2,C2 = w2, describes the representative consumer's
future period work- leisure decision
When drawn against the real interest rate, the optimal investment schedule shifts to the right if
future total factor productivity (z') increases.
The variable G considered in the model encompasses
government expenses on goods and services.
The experience of the U.S. economy during World War II confirms the prediction that a dramatic increase in government spending is likely to
increase real GDP and decrease consumption.
An increase in total factor productivity
increases consumption, increases output, and increases the real wage.
In the steady state of Solow's exogenous growth model, an increase in the savings rate
increases output per worker and increases capital per worker.
In the steady state of Solow's exogenous growth model, an increase in total factor productivity
increases output per worker and increases capital per worker.
Active stabilization policy can be rationalized in the New Keynesian model because
it allows a faster return to economic efficiency.
If the population growth rate increases by the same percentage points as the depreciation rate, what happens to the steady-state, per-worker output in Solow's exogenous growth model?
it decreases
If the population growth rate increases by 5% and the depreciation rate decreases by 5%, what happens to the steady-state, per-worker consumption in Solow's exogenous growth model?
it does not change
A price is sticky when
it does not change fast enough to balance markets.
The saving rate has the following characteristic in Solow's exogenous growth model
it is constant.
If the interest rate goes up, what happens to the investment demand curve?
it stays put
Without the cash-in-advance constraint, money would not be held by households in the intertemporal model with money because
its return is too low
Output supply is increasing in the interest rate because
labor supply is increasing in the interest rate.
Before the Industrial Revolution, standards of living differed
little over time and across countries
In the New Keynesian model,
monetary policy has a real impact.
All of the following increase total factor productivity except: [new inventions, new management techniques, more capital, favorable changes in government regulations]
more capital
Which of the following increases total factor productivity? a) investment in machinery b) a harsh winter c) better access to credit d) new production procedures
new production procedures
The endowment point is the consumption bundle in which
no savings occur
A consumer is a borrower if
optimum current consumption is greater than current disposable income.
M^d decreases with an increase in interest rates
people are saving more
Next period's capital is equal to current-period investment
plus the amount of current capital left over after depreciation.
Recent evidence suggests that output per worker is
positively related to the rate of investment and negatively related to the rate of population growth.
Savings in our model are
postponed consumption
Money is neutral in the model economy we discussed because
prices are fully flexible
Percentage deviations from trend in the Solow residual are
procyclical and have about equal magnitude as percentage deviations from trend in GDP.
Changes in total factor productivity are plausible causes of business cycles because productivity-induced business cycles correctly predict
real wages and consumption must be procyclical.
An increase in government spending
reduces consumption, increases hours worked, and reduces the real wage
Why are there no savings in the household's lifetime budget constraint?
savings are future consumption.
Consumption demand is decreasing when the interest rate increases because
savings become more attractive.
Growth accounting, popularized by Robert Solow, attempts to attribute a change in aggregate output
separately between changes in total factor productivity and changes in the supplies of factors of production.
Just prior to the four most recent U.S. recessions, there has been a
significant increase in the relative price of energy.
The cash-in-advance assumption means
some goods require currency to be purchased.
The consumer's lifetime budget constraint states that
the present value of lifetime consumption must be equal to the present value of lifetime disposable income.
There is evidence that income per worker is converging in
the richest countries, but not the poorest countries.
Consumption smoothing refers to
the tendency of consumers to seek a consumption path over time that is smoother than income.
For a competitive equilibrium in a two-period model, all of the following must be true except
there must be an equal number of borrowers and lenders.
One drawback of the modeling of government expenses so far is that
they are pure waste
For a lender in a (c1,c2) graph, the optimal consumption bundle is
to the left of the endowment point.
The simplest device to analyze dynamic decisions is a
two-period model
A one-period bond is a promise to repay
(1 + r) units of goods in the second period.
In determining the benefit of additional investment to the representative firm, we consider the marginal product of
Future Capital (K')
M^d increases with an increase in output
HH want more cash goods
Why are aggregate demand shocks not a good explanation of business cycles in the New Keynesian model?
Prices are not countercyclical.
What fundamental problem does the New Keynesian model have, when compared to the data?
Prices do not fluctuate in the right way.
Real business cycle theory argues that the primary cause of business cycles is fluctuations in
TFP (z)
When drawn against the current real wage, the labor demand curve shift to the right if
TFP (z) increases
According to real business cycle theorists, an increase in total factor productivity could lead to an increase in the nominal money supply due to
the Federal Reserve's attempts to stabilize the price level and the banking sector's expansion of deposit money.
In Solow's exogenous growth model, the principal obstacle to continuous growth in output per capita is due to
the declining marginal product of capital.
In the Solow growth model, the law of motion of capital takes into account
the depreciation of old capital.
The Solow residual attempts to measure the amount of output notexplained by
the direct contribution of labor and capital.
With an increase in total factor productivity in the Solow growth model,
the economy reaches a steady state with higher output.
Under fiscal stabilization policy in the New Keynesian model, after a negative shock to output
the government increases expenses and the central bank increases the money supply.
The basic real business cycle model has some difficulty explaining why
the money supply is procyclical.
